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Exchange traded funds that employ options have performed as well as the S&P 500 Index with lower volatility, providing investors with higher risk-adjusted returns.

“Options-Based Funds had similar returns as the S&P 500 Index with lower volatility and lower maximum drawdowns. The Options-Based Funds had higher risk-adjusted returns, as measured by the Sharpe Ratio, Sortino Ratio and Stutzer Index,” according to a recent white paper commissioned by the Chicago Board Options Exchange, titled Performance Analysis of Options-Based Equity Mutual Funds, CEFs and ETFs .

The white paper analyzed 80 Options-Based Funds focused on U.S. equities, including ETFs like the Powershares S&P 500 BuyWrite Portfolio (NYSEArca: PBP ). the largest covered-call ETF based off the S&P 500; the Horizons S&P 500 Covered Call ETF (NYSEArca: HSPX ). which also employs a covered call strategy on the S&P 500; the First Trust High Income ETF (NasdaqGM: FTHI ). which writes covered call options on the S&P 500; the First Trust Low Beta Income ETF (NasdaqGM: FTLB ), which buys put options on the S&P 500 and writes covered call options on the same index; the Recon Capital NASDAQ-100 Covered Call ETF (NasdaqGM: QYLD ). which provides a covered-call strategy that targets Nasdaq-100 securities; and the ALPS U.S, Equity High Volatility Put Write Fund (NYSEArca: HVPW ). which sells two-month 15% out-of-the-money put options on 20 diversified stocks with the highest implied volatility.

The covered-call options strategy allows an investor to hold a long position in an asset while simultaneously writing, or selling, call options on the same asset. Traders would typically employ a covered-call strategy when they have a neutral view of the markets over the short-term and just bank on income generation from the option premium. [ETF Chart of the Day: Call Coverage ]

In a flat market condition, the trader would use the buy-write strategy to generate a premium on the option. If shares fall, the option expires worthless and one still keeps the premiums on the options. However, the strategy can cap the upside of a potential rally – the trader keeps the premium generated but any gains beyond the strike price will not be realized.

Selling puts can reward investors in a stagnant or rising stock market as the trader would collect premiums, or yields, if the strike price remains below the current market price of a security.

From 1988 through the end of 2014, both the CBOE S&P 500 PutWrite Index and CBOE S&P 500 2% OTM BuyWrite Index generated higher returns and lower volatility than the S&P 500 Index, according to the white paper. The strong risk-adjusted returns are attributed to the richly priced options.

The options-based funds have provided attractive yield opportunities for income investors. Specifically, the average distribution yield has consistently remained above 5.0% since 2006, according to the white paper. Looking at the ETF options, PBP has a 5.05% 12-month yield, HSPX has a 2.96% 12-month yield, FTHI has a 4.47% 12-month yield, FTLB has a 3.67% 12-month yield, QYLD has a 11.08% 12-month yield and HVPW has a 9.42% 12-month yield.

Contrary to conventional wisdom, option-based strategies have offered lower risk-adjusted returns, with lower annual standard deviations than Treasuries, the S&P 500, the MSCI EAFE and the S&P GSCI since 2000, Daily Alts writes.

There were just 10 option-based strategies available at the turn of the millennium, but the number of funds have jumped, with a number of recent ETF additions over the past few years.

For more information on options-based strategies, visit our buywrite category .

Max Chen contributed to this article .

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.